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Why the Resource-Rich Canadian Government Is Always Poor

08/31/2015 05:27 EDT | Updated 08/31/2016 05:59 EDT
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Canada is the second-largest country in the world by total area. It has plentiful natural resources and a relatively small population of 35 million. Yet our government always claims it is short of money. Education funding has to be cut, healthcare resources are said to be insufficient, eligibility for Old Age Security is postponed from 65 to 67 and even Canada Post cannot afford to deliver mail to our homes.

Canada might be the first major western country that cannot afford to deliver mail to the homes of its people.

If you tell your friends overseas our situation, they might think that you're joking.

Many Canadians accept the situation as normal, something that can't be changed. Yet they do not question the absurdity of this reality.

Here are the world rankings of Canada's natural resources:

Potash, #1

Uranium, #2

Oil, deposit #3 (production #6)

Nickel, #4

Diamond, #5

Salt, #5

Zinc, #6

Gold, #9

Copper, #9

Many Middle East countries are rich because of oil, but Canada has many other valuable natural resources in addition to oil. Why is our government so poor?

When the price of oil was at record high and Alberta was called the engine of the country, the Albertan Conservative government was in deficit year after year.

A 2013 International Monetary Fund report estimated that Canada annually subsidizes the energy industry at a staggering $34 billion.

Oil exploration in the North Sea by the United Kingdom and Norway provides a telling economic case to the world. Although the U.K. and Norway basically possess similar quantities of oil reserve and commenced exploration at the same time, decades later the country which adopted the economic model of nationalization has an almost $1-trillion reserve, whereas the U.K., applying Margaret Thatcher's free market economy, ended up $2.5 trillion in national debt.

Like Norway, other countries like those in the Middle East, China, Malaysia and Russia are also using the nationalization model.

For the U.K. and Canada, not only have they adopted a privatization model for their oil and mineral resources, these governments' tax rates are also much lower than those in Norway. Canada's corporate tax rate is half that of Norway's. In additional to corporate income tax, Norway collects a special oil profit tax. In Alberta, the royalties for oil sand production could amount to merely 1 per cent.

In the province of B.C., the overall revenue of the mineral industry for the year of 2013 was $8.5 billion. Do you know how much tax and charges our government (including government agencies) collected from this revenue? The answer is $0.5 billion, or six per cent of the overall revenue, according to the Mining Association of B.C.'s website.

I'm sure our government would prefer to say that the tax rate is much higher -- that B.C. has a two per cent net current proceeds tax and a 13 per cent net revenue tax. Nevertheless, since government allows the mining business to deduct its investment cost and many other expenses, comparing the industry's revenue and the tax government collected is a better way to reflect the reality.

Even if we look at it from government's perspective, a 10-something per cent tax is in fact low. Think about it: if you want to manufacture an automobile, in addition to the plant and hiring workers, you also have material costs like steel, rubber and parts. For the mining industry, which digs stuff out of the ground to sell, should they merely give six per cent to the government? In the retail trade, just the sales tax is 12 per cent.

According to a 2013 KPMG study on mining investment in Canada, Canada's corporate income tax is lower than that of other countries active in mining activities. The investment, expenses and operating loss of a mining exploration can be used to deduct tax for 20 years, and most provincial governments only charge a profit tax rather than collect a royalties-type tax.

The simple distinction between a profit tax and royalties is this: a company doesn't need to pay profit tax when its operation is not making a profit, whereas royalties are collected according to the business revenue. For example, when a company sells one ton of gold, the government still collect royalties even when it reports an operational loss. However, if the company sells 100 tons of gold, it pays no profit tax if there is no "profit" when the costs, investment and the business loss in the past 20 years are deducted.

I guess readers would now begin to realize why a country rich in natural resources could be so poor. It's because most of the benefits go to the big businesses instead of to the government.

The more intriguing part is that B.C.'s revenue collected from natural resources has been dropping, while international commodity prices have gone up quite a bit.

In the 2003-2004 financial year, the B.C. government's natural resources revenue was $3.7 billion (consisting of revenues from national gas, land royalties, forestry, energy and mining). In 2013-2014, B.C. collected natural resources revenue of only $2.8 billion, i.e. almost a billion dollars less than a decade ago.

The right-wing party, its think tank and the media often say left-wingers don't understand the economy and would ruin it. The fact is, the NDP has never governed federally. It only recently was elected for the first time in Alberta. Ontario had an NDP government over two decades ago, and that NDP premier later joined the federal Liberals. B.C. has been a right-wing government since 2001.

I won't say that if the NDP wins the election, our government would immediately recover from its poverty. But the indisputable fact is that the Conservatives, the Liberals and their economic policies are responsible for Canada's poor condition.

This is the first article in a series on why Canadian government is always poor. Next: how both the Conservatives and the Liberals are responsible for undermining the government coffers.

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